Bloomberg News

Stocks End Worst Run Below Average Since ’08: Technical Analysis

October 10, 2011

Oct. 10 (Bloomberg) -- The Standard & Poor’s 500 Index rose above its 50-day average for the first time since July, ending its longest streak below the threshold since 2008 and sending a bullish sign to some analysts who study charts.

The benchmark gauge for U.S. equities rallied 3.4 percent to 1,194.89 today, surpassing 1,176, its average level during the past 50 days. The index spent the previous 52 days below the average, surpassing the 48-day stretch from May to July of last year, according to data compiled by Bloomberg.

The index’s gain above its 50-day moving average “reinforces the case that an intermediate, multi-week to multi- month low is now in place,” Robert Sluymer, New York-based managing director of U.S. technical research at RBC Capital Markets Corp., said in a telephone interview.

Concern that Europe’s debt crisis will drive the global economy into a recession pushed the S&P 500 down as much as 19 percent from its 2011 peak on April 29, posing the biggest challenge to the bull market that began in 2009. The index closed below 1,100 for the first time in more than a year on Oct. 3, falling below the range that held since August and putting the gauge within 1 percent of a bear-market drop of 20 percent from its April peak.

The S&P 500 has risen 8.7 percent since its 2011 low on Oct. 3, the biggest rally over five days since March 2009, amid growing optimism Europe will tame its debt crisis and after reports showed American payrolls increased more than economists forecast in September and manufacturing unexpectedly accelerated.

VIX Below Average

As stocks rebound, the cost of using options as insurance against drops in the S&P 500 fell. The Chicago Board Options Exchange Volatility Index, or VIX, is below its 50-day average for the first time since July 22, Bloomberg data showed. The volatility gauge on Aug. 8 closed at a 29-month high of 48.

The S&P 500 remained under its 50-day moving average for 72 days ended Dec. 15, 2008, Bloomberg data show. The index sank to a 12-year low three months later before surging as much as 102 percent to a three-year high on April 29.

Christopher Verrone, head of technical analysis at New York-based Strategas Research Partners, said the S&P 500 faces “resistance” at 1,230, a level it hasn’t seen since Aug. 3

As for the 50-day average, “It’s important we got through it, given that we haven’t been able to over the last number of weeks,” Verrone said in a telephone interview. “But more important is the 1,230 range, where there is a lot of overhead supply. I’d be more impressed if we got through that range.”

While the S&P 500’s advance above its 50-day moving average is a positive sign, it’s important that the slope of the average turns upward, Sluymer said. The 50-day average peaked at 1,331.39 on June 3 and has been falling since, according to Bloomberg data.

“It takes time for an uptrend developing,” he said.

--Editors: Michael P. Regan, Chris Nagi

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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